Cuda acceleration with CUDA 1.2
The compiler the error message talks about is the gcc C compiler. Nvidia's nvcc compiler (which comiles the cuda code) does not work with gcc-4.8. I think the version you need is gcc-4.6.
I had the same problem. I had to install gcc 4.6 and then set the link gcc to gcc-4.6. It is normally set to the newest version of the compiler (gcc-4.8 in your case). There is also an answer that could help you on Ask Ubuntu.

However, as @gandalf3 mentioned in the comments to your question, this will not help you with using cycles. The compute capability of your card is just too low. It does not support certain features that cycles needs.